Growth, Instability and Price Parity of Input Costs and Output Prices of Irrigated Wheat and Cotton (Long Staple) in Gujarat, India

Abstract

Aims: The study aims to examine the growth, instability and price parity of input costs and output prices for two major crops in Gujarat, namely irrigated wheat and cotton (long staple). Study Design: An analytical study based on secondary time-series data, employing compound growth rates, an instability index and the index of terms of trade (parity index). Place and Duration of Study: Gujarat State, India; data covering the twenty-year period from 2004-05 to 2023-24 were compiled from official government sources. Methodology: Time-series data on the Minimum Support Price (MSP), Farm Harvest Price (FHP) and cost of cultivation (Cost C2) for irrigated wheat and cotton (long staple) were compiled for 2004-05 to 2023-24. Compound annual growth rates (CAGRs) and the Cuddy-Della Valle Instability Index (CDVI) were used to examine growth and instability. The index of terms of trade (parity index), calculated separately using FHP and MSP as output prices, was used to assess parity between input costs and output prices. Results: Both crops recorded low MSP instability, indicating stable and predictable support prices, whereas FHP showed comparatively greater year-to-year fluctuation. Of the two crops, cotton recorded slower growth in cultivation costs, possibly aided by the adoption of Bt cotton technology and subsidised drip irrigation, and consequently exhibited more favourable terms of trade. Its parity index remained above 100 under both FHP-based and MSP-based measures for most of the study period. By contrast, irrigated wheat showed a mildly adverse position under market prices but a distinctly favourable position under MSP, consistent with a possible cushioning role of assured government procurement, although procurement quantities were not directly examined. Conclusion: These findings highlight differences in the extent to which cost containment and procurement support translated into favourable terms of trade for the two crops.